Full Expensing: 100% First-Year Relief for Limited Companies (2026/27)
Full expensing gives limited companies an immediate 100% corporation tax deduction on qualifying new plant and machinery, with no upper spending limit. Here's how it works alongside the Annual Investment Allowance.
Why full expensing exists
Full expensing was introduced to give companies a permanent, unlimited incentive to invest in new plant and machinery, building on the temporary "super-deduction" that preceded it. Unlike the Annual Investment Allowance, which is capped at £1 million a year and available to any business structure, full expensing is specifically a corporation tax-only relief, with no spending cap, designed to particularly benefit larger companies whose capital expenditure regularly exceeds the AIA limit.
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| Feature | Annual Investment Allowance (AIA) | Full expensing |
|---|---|---|
| Deduction rate | 100% | 100% |
| Annual spending cap | £1,000,000 | None |
| Available to | Sole traders, partnerships, companies | Companies (corporation tax) only |
| New or second-hand assets | Both qualify | New and unused only |
| Main pool vs special rate pool assets | Both, within the cap | Main-rate assets at 100%; special rate assets have a separate 50% first-year allowance |
For most smaller companies with capital expenditure comfortably within the £1 million AIA cap, the AIA and full expensing produce an identical practical result (100% relief), and it rarely matters which relief is technically claimed. Full expensing becomes specifically important once a company's qualifying spending exceeds the £1 million AIA threshold in a single year.
Worked example: spending above the AIA cap
Suppose a manufacturing company buys £1.5 million of new, unused production machinery in a single accounting period.
| Relief used | Deduction |
|---|---|
| Annual Investment Allowance (capped at £1,000,000) | £1,000,000 |
| Full expensing (100% on the remaining £500,000) | £500,000 |
| Total first-year deduction | £1,500,000 |
Because full expensing has no cap, the company can claim a full 100% deduction on the entire £1.5 million outlay in the same year, rather than needing to carry the excess above £1 million into a standard writing-down allowance pool at a much slower rate.
Special rate pool assets: 50% first-year allowance
Full expensing's 100% rate applies to main-rate plant and machinery. For assets that would normally sit in the special rate pool (certain integral features of buildings, long-life assets, and some others), a separate first-year allowance of 50% applies instead, with the remaining 50% added to the special rate pool and written down at the normal (slower) rate in subsequent years.
| Asset category | First-year relief |
|---|---|
| Main-rate plant and machinery (new, unused) | 100% (full expensing) |
| Special rate pool assets (new, unused) | 50% (with remainder in the special rate pool) |
The catch: balancing charges on disposal
Worked example: disposal after full expensing
| Step | Amount |
|---|---|
| Original cost of qualifying asset | £200,000 |
| Full expensing deduction claimed (100%) | £200,000 |
| Sale proceeds several years later | £60,000 |
| Balancing charge (taxable as income) | £60,000 |
The full £60,000 sale proceeds become taxable, since there's no remaining unclaimed allowance to offset against it — the entire original cost was already relieved upfront. This is worth factoring into investment decisions for assets with meaningful expected resale value, since the tax timing advantage of full expensing is partially clawed back on eventual disposal.
New and unused only
A further restriction worth flagging clearly: full expensing applies only to new and unused plant and machinery. Second-hand equipment — even if it would otherwise be main-rate qualifying plant — does not benefit from full expensing, though it can still be claimed under the Annual Investment Allowance (within the £1 million cap) or standard writing-down allowances.
| Asset condition | Full expensing eligible? | AIA eligible? |
|---|---|---|
| New, unused main-rate plant | Yes | Yes (within £1m cap) |
| Second-hand main-rate plant | No | Yes (within £1m cap) |
Who benefits most
Full expensing is most valuable for:
- Capital-intensive companies with new equipment spending regularly exceeding £1 million a year, where the AIA cap alone would leave a meaningful portion of spend relieved only slowly via writing-down allowances.
- Companies planning major new plant investment, since the immediate 100% deduction improves cash flow in the year of purchase compared with a multi-year writing-down allowance profile.
- Businesses that don't expect to resell the qualifying assets for significant value later, minimising the balancing charge impact on eventual disposal.
Use our corporation tax calculator to model the cash flow and tax impact of full expensing against your company's planned capital expenditure.
Frequently asked questions
What is full expensing?
Full expensing lets companies deduct 100% of qualifying expenditure on new, unused main-rate plant and machinery from their taxable profit in the year of purchase, rather than spreading the deduction over several years through normal writing-down allowances.
Is there a spending limit for full expensing?
No. Unlike the Annual Investment Allowance, which is capped at £1 million a year, full expensing has no upper limit, making it particularly valuable for larger companies with capital expenditure exceeding the AIA cap.
Can sole traders and partnerships claim full expensing?
No. Full expensing is only available to companies within the charge to corporation tax — sole traders and partnerships of individuals must rely on the Annual Investment Allowance and standard writing-down allowances instead.
Does full expensing apply to second-hand equipment?
No. Full expensing is restricted to new and unused plant and machinery. Second-hand assets don't qualify for full expensing, though they may still qualify for the Annual Investment Allowance or standard writing-down allowances.
What happens if I sell an asset after claiming full expensing?
Selling an asset on which full expensing was claimed triggers a balancing charge, broadly taxing the full disposal proceeds as income in the year of sale, since the entire cost was already deducted upfront — this differs from the more modest balancing adjustments typical under standard capital allowances pools.
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